The chart shows the running total of profits from short term trades so far this year. As you can see I got a nice profit early in the year and then blew it all up. Particularly on 29 June. Then I started trading with "the model". I have slightly exceeded the previous maximum level of profits but went through two periods of bad and confused trading against the model. All of this is documented in this blog as it happened. I will need to see a decisive break to a new highwater mark for the year before I will really get convinced that trading this model is practically profitable in the real world. Both pre- and post-model there are some long streaks of mostly winning trades. These tend to engender overconfidence and consequent blowups. Psychology is the hardest part of trading for me.
This might look like irresponsible and reckless risktaking. But losing $4000 in a period of bad trading is a loss of only 1.25% of net worth. This is nothing compared to the reckless risktaking at Amaranth Advisors :). More on Amaranth Advisors.
4 comments:
nice comeback after the drawdown. YEs, psychology is tough and critical. Have you read "Trading in the Zone" by Mark Douglas? If not, you should.
Thanks! No I haven't read that - I think I bookmarked it on my Amazon wishlist :) The real problem here was June 29 when I went into a panic and froze as the market rose against me. During the decline in the month or two before that I knew I was losing which was why I was intensively working on "the model" to try to put my trading on a more consistent basis. But I want to see another segment of equity curve that looks like the one from June 30 to the present and reaching say $20k in profits for the year before I will think I am finally on the right track to profitable trading. The chart doesn't include trades on my Roth IRA BTW - it has been a bit smoother sailing in that account. The curve includes all short term gains on trades closed on my US and Aus taxable accounts. It is from a spreadsheet I maintain for tax purposes.
Wow! That looks like a roller coaster ride to me. I want to ask about psychology. How do you handle volatility? Does it give you a queasy feeling? How have you learned to deal with its effects?
It's a continuing struggle. I am getting better through experience and having increasingly systematic trading methods so that there is less and less room for judgement regarding making decisions. At the moment each major loss is helping me improve the trading model by making focus on its flaws.
Today for example was very testing of my belief in my model. It was a rather large unexpected positive shock. One tactic is to look for analogous patterns in the model's historical backtested record and then see what happened next. Usually that is reassuring. I know that in the long-run this model will make money too. Before June I had models and methods but not anywhere near the same level of backtesting and systematicity.
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